It's a Good Time to Get Griffon

Griffon has done nothing wrong over the past nine years. Just look at the chart below. In fact, earnings per share grew by more than 540% during that period. Dividends more than tripled. Despite those fine numbers, continuous shareholders only made gains that represented a fraction of the true value created. By definition, that can only happen due to price-to-earnings compression. Situations like that tend to reverse themselves over time, typically rewarding buyers near cheap entry point valuations with outsized gains. The data below document GFF's five most recent selloffs and the stock's four previous rebounds. The average decline averaged 42.7% from peak to trough. They took about 4.6-months to play out. The four recoveries lasted longer, at around 11.7-months, and ultimately delivered much more powerful gains averaging 138.3%. Clearly every previous major selloff in Griffon presented a great opportunity for buyers at the nadirs to capture more than triple the magnitude of the declines. GFF's adjusted EPS in 2021 were $1.86, an all-time record. The stock peaked on Dec. 29, 2021 at $29.42. Amazingly, it then sold off to $20.42 intraday on March 25, 2022, a stunning 30.5% pullback. We now appear to be receiving yet another chance to buy this fine company at a fabulous valuation. What is Griffon really worth? GFF's average P/E since 2014 has run about 20-times, accompanied by around 1.32% in current yield. Throw out the momentary Covid-panic bottom and today's valuation is the best in more than a decade. As of Sept. 27, 2022 GFF sold for just 10-times forward earnings along with a well above typical 1.75% yield. Every one of GFF's six most recent should have sold moments (red-starred below) came with the shares commanding from 17-times to 31-times forward EPS. Each of those periods also gave shareholders relatively skimpy yields due to those somewhat pricey valuations. Only the Christmas Eve Capitulation of 2018, and the March 2020 pandemic-related low provided similarly great entry points (green-starred) to what is available right now. GFF launched very nice rallies from much higher multiples from its lows in 2014, 2015 and 2016. Even a partial reversion towards the mean valuation could easily send GFF up to $30 to $36 quite quickly on expected EPS this year of $2.05. Yahoo Finance is actually even more bullish on GFF than that. It calls for $36.60 by this time next spring. Reaching its goal price would make for almost 80% in total return. Research house Morningstar does not have analyst coverage on GFF right now. Its computer-generated present-day, as opposed to year-ahead, fair value estimate for Griffon sits at $25.23. I can't wrap my head around their neutral rating on GFF, as it sits well below that fair value estimate and is not far above what Morningstar calls a 5-star (strongest buy) level of $19.42 per share. Note, too, that GFF gave traders the chance to cash out between $25.50 and $29.42 in all but one of the past seven calendar years including 2022 year-to-date. Independent research firm FastGraphs goes on strictly quantitative measure in determining their longer-term target prices. GFF operates on a Sept. 30 fiscal year. FastGraphs thus calls for GFF to be worth $40.26 by the end of September in 2022. Their projected price for Sept. 30, 2023 now sits at $51.76. Those goals are not far-fetched when you see FastGraphs' EPS estimates for GFF of $2.06 and $2.63 respectively for this fiscal year and fiscal year 2023. On Dec. 21, 2021 six different directors of Griffon all made open market buys. In aggregate they picked up almost 19,000 shares at an average cost of $26.30. There have been no insider sales in GFF in over a year. We now have the opportunity to own GFF about 21.8% cheaper than those very knowledgeable folks paid just a few months ago. Option-minded traders can collect generous premiums for shorting naked puts on GFF out to Oct. 21, 2022. Break-evens on any forced purchase, if exercised, dropped to from $17.30 to $19.90 per share for the $20 - $25 strike price puts illustrated below. True believers in GFF's large upside potential might also want to consider speculative purchase of slightly in-the-money $20 calls out to Oct. 21, 2022. Break-even, if held through expiration is only $23.20. If GFF rebounds to $25 your $3.20 outlay would be worth $5, a 56.25% gain. Should GFF reach $30 before expiration, your original cash outlay would have more than tripled, to $10 per share. Griffon appears poised for a major upturn in the near future based on both fundamentals and its own trading history. Buy some GFF shares, sell some puts or perhaps even take a flyer via purchase of some Oct. 21, 2022 $20 strike price call options.

It's a Good Time to Get Griffon

I see GFF poised for a major rebound.

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